The resources people accumulate during marriage are vulnerable to division when they divorce. Those on the edge of divorce often have a hard time picturing the future. They don’t know what their life might be like after the end of the marriage, and they may be uncertain about what resources they can retain after the divorce.
Retirement savings are among the most important assets people acquire during their working years. By setting aside funds, they help ensure their comfort during their golden years. Many couples aim to have seven figures in savings by the time they retire, making those accounts a point of contention when they divorce.
Who usually keeps retirement accounts when married couples divorce?
Accounts are at risk of division
Many people have retirement savings accounts attached to their employment. Their employers may even make matching contributions that help increase their savings as an employment benefit. Spouses might assume that retirement accounts held in their own names are separate property rather than marital property.
Especially in scenarios where one spouse may have begun saving before they got married, they may naturally expect to retain as much of their retirement savings as possible after the divorce. Regardless of what people expect, they often have to share their retirement savings accounts.
Income earned during marriage is marital property that is subject to division. Any savings set aside and the assets acquired using marital property are part of the marital estate. Contributions to a retirement savings account during a marriage, including deposits made as an employment benefit, are potentially subject to division in a divorce.
The good news is that people can often preserve their retirement savings. Some couples negotiate arrangements that allow each spouse to keep their separate retirement accounts. Others balance the value of retirement savings with other marital assets.
If dividing the account is actually necessary due to an agreement between the spouses or a court order, it is possible to do so without risking major penalties and taxes. The use of a qualified domestic relations order (QDRO) to divide a tax-deferred retirement account, such as a 401(k), can help people avoid tax expenses and penalties when dividing retirement savings.
Those who feel strongly about securing specific terms for property division matters may want to focus on settling instead of litigating. In contested property division cases, there is little certainty about how a judge might rule. People can often achieve specific goals, like retaining their retirement funds, if they compromise in other aspects of the divorce.
Understanding property division rules can help people prepare for their upcoming divorce proceedings. Retirement accounts and other high-value assets require careful consideration as people prepare for divorce.
